Will We Let Congress Hand Billion$ More To Big Corporations?

This one is simply outrageous. Corporations currently owe up to $700 billion in unpaid, “deferred” taxes. The country needs the money – partly because these companies owe so much in taxes. Which of the following choices should the country make?

1. Tell the companies to pay up what they owe, bringing us hundreds of billions to use now and tens of billions a year more from now on.

2. Let them off the hook from ever paying most what they owe, if only they please would let us have a little bit of it now.

Who Is The Boss Of Whom?

The choice depends on who you think is supposed to be the boss of whom. If you believe that We the People are in charge of this country, then obviously you’d say these corporations should just pay the taxes they owe. But if the corporations are in charge of us they’ll tell us they aren’t going to pay these taxes unless we give them something.

Not surprisingly, Congress appears to be working toward option ‘2.’ It’s called a “repatriation tax holiday.” They are proposing to tell the companies that moved jobs, factories and profit centers out of the country that it was the right thing to do. Unfortunately that will tell companies that didn’t do these things that they were chumps.

What Is A Tax Holiday?

Here is what’s going on. Giant, multinational U.S. corporations owe our government up to $700 billion in taxes on about $2 trillion in profits they have made (or made it look like they made) outside of the country. But there is a loophole that lets them hold off on paying those taxes owed until they “bring the money home.” So of course, many corporations have been engaged in all kinds of schemes to make it look like they make their money elsewhere – and/or move jobs, factories and profit centers out of the country.

[Sen. Harry] Reid and [Sen. Ron] Paul are quietly pressing for a one-time tax “holiday” — a special and lucrative tax deduction — to lure multinational corporations to bring profits home from overseas, producing a sudden windfall.

Instead of telling these corporations that it’s time to pay up, it looks like Congress is preparing to just let them keep much (85 percent) of the money. It’s called a “tax holiday.”

What is the “conflict” the headline talks about? It isn’t a conflict between those who want to hand corporations hundreds of billions of dollars and those who do not want to. The conflict is over how to hand them the money!

Senator Ron Wyden, Democrat of Oregon, the Finance Committee chairman, and Senator Orrin G. Hatch of Utah, the ranking Republican, want that money to help smooth passage of a broad rewrite of the tax code.

So if Senator Reid is on board for a tax holiday and Senator Wyden is on board for a tax holiday, it looks like the idea of giving this huge amount of cash to these corporations is baked in to the thinking in the Senate. And we’re talking about Democrats here. One side wants (Reid) to give them a tax holiday and get a little bit to use to pay for infrastructure, the other side (Wyden) wants to use it as a bribe to get these giant corporations to let the U.S. government “reform” the tax laws. Both sides are conceding that they’ll accept a tax holiday.

But no one in this discussion is just saying, “Hey, we’d get up to $700 billion and tens of billions every year from now on if we just told these companies to pay the taxes they owe.”

The cost: At Least $95.8 Billion

The idea is to give these companies an 85 percent deduction – the “tax holiday” – on their foreign profits and only taxing 15 percent of the profits. In other words, instead of taxing $2 trillion of profits being held out of the country they’ll only tax $300 billion. If these corporations “bring the money home.”

Bloomberg News looks at the cost of this, in “Repatriation Tax Holiday Would Cost U.S. $95.8 Billion.” The “holiday” would bring in a quick $19.6 billion, but would cost $95.8 billion of tax revenue that would come in anyway over the next decade with no changes – not even making these companies just pay up. (Note: This calculation assumes Congress won’t just tell these companies to just pay their taxes. That would bring in up to $700 billion at the top tax rate of 35 percent and tens of billions a year from now on. Companies can deduct any taxes already paid elsewhere, so “up to” means $700 billion minus taxes paid elsewhere.)

An Engineered “Crisis”

That’s right, after all these years of propaganda about budget deficits and the hostage-taking and the “fiscal cliff” and the “debt ceiling” and the sequester and all the resulting budget cuts in essential services and “austerity” and how this has held back the recovery … it looks like Congress is going to just let companies off from paying hundreds of billions of taxes they already owe. This is not about passing another tax break/subsidy, etc. These are taxes that are due and payable on profits that have already been made but that these companies are keeping outside of the country (and away from their shareholders).

Why would Congress even consider letting these corporations off from paying the taxes they owe? Because of rules about not increasing the deficit Congress “needs” the money. This is a “realpolitik” deal, recognizing that the companies have enough power to keep Congress from just making them pay up what they owe. The thinking is they can appease the corporations with an 85 percent tax holiday to get them to pay at least 15 percent of that they owe.

This is another engineered “crisis” where the country is made to believe that deficits are keeping us from doing things we need to do. We need to fund transportation infrastructure, we can’t borrow the money to invest in things like this that make our economy more efficient, hence the need to “incentivize” the corporations to please bring home some of the money they owe us.

They Did This In 2004 And It Made Things Worse

In 2004 corporations ran the same scam on Congress, except that time they promised to use the money they brought back to “create jobs.” So what happened?

In 2011 the Institute for Policy Studies (IPS) looked at the results of the 2004 tax holiday and found that “their holiday didn’t just fail to create the promised jobs. Their holiday enriched corporations that actually destroyed jobs in the months right after they received their tax windfall.” IPS found that 58 multinationals who used the “American Job Creation Act of 2004″ tax holiday not only immediately laid off tens of thousands, they continued laying off, and laid off close to 600,000 workers between 2004 and now. From the IPS summary of the study,

One government study looking at the first two years after the repatriation windfall found that 12 of the top recipients laid off more than 67,000 American workers. These firms collectively brought back home more than $100 billion …

According to IPS, the companies that gained the most from the tax holiday actually cut jobs, on top of that they used the tax gift money to buy back their own stock, increasing its value, and pay out dividends, both thereby enriching executives and shareholders.

[fve]http://youtu.be/HwPDUCw9K_8[/fve]

(This is from 2011. Another half a trillion of profits have been shifted offshore since then.)

In 2004, when Congress approved a similar holiday, lawmakers vowed never to do it again. If it became a habit, they reasoned, companies would keep their profits overseas waiting for the next tax holiday. That, the bipartisan Joint Committee on Taxation explained, is the idea’s “moral hazard problem.”

The 2004 tax holiday only made things worse because companies realized they could get out of paying taxes entirely if they moved profits offshore and held out until the next holiday season. If we do it again, every company will be compelled to move jobs, factories and profit centers out of the country to stay competitive.

They are going to try to sneak this through under the radar. Maybe We the People can stop it if we make enough noise.

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About Dave Johnson

Dave has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.